<<To fairly compare interest rates, you MUST figure in the $1500 extra you'll pay for your car if you take the 1.9% financing. Treat it as interest over the life of the loan. Your 1.9% financing suddenly becomes an astronomical APR (sometimes as high as 15%)!!>>

I don't agree with this. The $1500 is above and beyond your best negotiated deal. This is money coming from the auto manufacturer, not the dealer, so the dealer gets their money either way.

Let's look at an example:

We (collectively at The Motley Fool) are buying the "average" car with a sticker price of $18,000. We follow the foolish advice on buying a car and negotiate a price of $16,500. Let's also assume we are putting a $1500 down payment, so the amount financed would be $15,000. The last assumption is that the loan will be for 4 years, either way.

If we take the $1500 from the dealer, we cannot get the promotional financing rate, so we will get the "average" rate of 8.9%. We will end up financing $13,500. This equates to a monthly payment of $335.31 and a grand total of $16,094.76.

If we take the 1.9% financing we will end up financing all $15,000. The monthly payment is $324.77 and a grand total of $15,589.09.

By taking the promotional financing and "buying" $1500 more car, you pay $505.67 less over 4 years. In my opinion, it is always better to go with the promotional financing than the cash back. Besides that, most auto manufacturers are only offering $700 or $1000 cash back, not the $1500 in our example, so this just makes the dirrerence that much greater. And if you get a "regular" finance rate higher than the 8.9% used in the example, again you end up paying more.

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